In Digital Transformation, 'No Pain, No Gain' Applies

It's a lesson we've seen time and time again over the years and even decades. Companies invest a great deal of time and money in a new technology implementation, expecting to see revenues to start climbing as soon as the solution is dropped in. While digital technologies -- which we'll define here as cloud, APIs, mobile, data analytics and online channels -- are intended to have a direct impact on the business, it may take time for changes to take effect.

Digital transformation requires crossing multiple thresholds.

Photo: Joe McKendrick

Before organizations will start seeing the benefits of their digital transformation efforts, they will likely experience a prolonged period of revenue loss. That's the word from MuleSoft, which just released a survey of 650 IT executives that finds four out of five businesses (81 percent) are expected to see a negative impact on revenue in the next 12 months if they fail to complete digital transformation initiatives.

At the same time, digital is already contributing a surprisingly significant share of revenues. On average, IT executives reported that a quarter of their organization’s revenue is now generated from APIs and API-related implementations, the survey shows. More than a third (35 percent) of respondents stated over a quarter of their organizations' revenues come from APIs. Interestingly, more than one in ten (11 percent) say the majority of their revenues now arise through APIs.

Digital efforts are accelerating. A similar survey conducted last year found nearly a quarter (23 percent) of organizations were undertaking digital transformation initiatives at the time, and 68 percent were planning to in the next three years. In comparison, this year, nearly three quarters (74 percent) of organizations are actually carrying out digital transformation initiatives, with a further 23 percent planning to over the next three years.

Another key trend is creating a connected consumer experience — "improving customer experience through connecting all customer-facing systems." While 92 percent of executives say this is a priority, only 39 percent of organizations say they offer a completely connected user experience across all channels.

What's slowing things down, then? The sheer number of applications that need to be either upgraded or replaced is one factor. On average, organizations are using 1,020 individual applications across their business. However, on average, a relatively small number (29 percent) of these applications are currently integrated or connected together. Thus, one of the main contributors to the growing IT delivery gap is integration, which continues to be a significant drain on time, budget and resources. The survey results show the vast majority (89 percent) of IT executives believe that integration challenges are slowing or hindering digital transformation within their organizations. The survey report's authors estimate that organizations are spending nearly a quarter (22 percent) of their annual IT budgets on integration, and thus could equate to over $800 billion spent on integration in 2018.

As a result, the people charged with delivering the goods -- mainly IT departments -- are stretched to the limit. While IT budgets have remained relatively static, their project volumes have grown, on average, by 27 percent. In addition, two-thirds of IT executives admit they "were unable to deliver all projects asked of them last year," the survey shows.

Digital transformation is not an overnight transition to online processes and connections -- it is an ongoing process that involves rethinking the business you are in and redesigning the processes that deliver value to the customer. One day at a time.